I can't recall when there has been more anticipation built up about the release of a cellular phone -- or any consumer device -- than now, with the Apple (Nasdaq: AAPL) iPhone. The buzz has been incessant and almost as long-lasting as the ringing in my ears.
Yet all the talk and speculation has got me thinking -- even if the iPhone only partially lives up to the hype, who really benefits from it? Of course, we could look at who builds the guts of the iPhone and buy stock in those companies. But beyond this, who will profit the most from the supposed "sea change" that the iPhone is ushering in?
Getting a little crazy
In case you live on Venus, have no communication with the outside world, or simply don't know why everyone is talking about the iPhone, look here, here, and here. Its pending release has caused markets to gasp, has forced competitors such as Motorola (NYSE: MOT), LG, and Samsung to push out "iPhone killers," and has carriers scrambling to offer them. The only thing the iPhone buzz hasn't done yet is change the earth's magnetic polarity.
Even smartphone manufacturers that haven't yet built a media device to go directly mano a mano with the iPhone have commented on its impact on sales of their devices. Everyone from Research In Motion (Nasdaq: RIMM) to Palm (Nasdaq: PALM) to Nokia (NYSE: NOK) has had to assure investors and the general public that they will not implode under the weight of a giant apple with CEO Steve Jobs' smug profile beaming on the side.
You phone, iPhone, we all phone
And I agree that the iPhone story is not so much about who or what it will squash, displace, or otherwise somehow render moot. I'm much more interested in what the iPhone will increase, multiply, and magnify -- and I believe investors should be as well. Thus, the story I'm most interested in is that of the iPod, where an entirely new, thriving ecosystem was built on the back of a smash-hit consumer device.
To this end, much has been said about the high price the iPhone will supposedly command -- $500 even for the cheapest version -- and how that will affect its popularity. Certainly, a high price will keep it out of the hands of millions, but given time, the price should come into a range more digestible to the mass market, just like with the iPod. On this point, I agree with my Foolish colleague Tim Beyers that a premium price for the device may be the smarter move in the long run.
A premium product also sets up a more lucrative value chain for companies that will eventually build products or services around the iPhone. So while the exclusive provider of the iPhone -- AT&T (NYSE: T) -- won't see a huge crush of new subscribers on the back of a cheap device, the premium pricing of the iPhone will place it a level above the competition and attract big spenders. And I believe consumers will pay for a higher-quality device and service, even if this is only in perception and not fact.
A question of control
One of the biggest debates around the iPhone, and one with large, long-term consequences, is whether the device will change the balance of power between mobile device manufacturers like Motorola and Ericsson and wireless service providers such as AT&T and Verizon (NYSE: VZ). Historically, the carriers call the shots and largely dictate what features and services they want to offer consumers. Additionally, carriers want to control the branding and distribution of products and services, to achieve the maximum benefit of paying subscribers sticking with them, rather than another member of the value chain.
While many pundits have offered the opinion that Apple will finally break the carriers' control over wireless services and devices, I don't buy it. The same was said about offering the Internet on mobile phones and how it would destroy the carriers' "walled garden," where consumers are captive mostly to carriers' product pages. While Apple and other manufacturers of high-buzz products will get preferential treatment, carriers will not go so far as to sabotage the value chain that keeps them growing.
Not only do I believe carriers will maintain their position, I actually think they all stand to benefit tremendously from the "iPhone effect." Devices with cool new features bring more media applications into the mobile realm, where carriers can bill for them -- even considering the potential that carriers may lose billable bandwidth to services carried over the iPhone's Wi-Fi connection. Carriers will reap not only the benefits of iPhone and iPhone-like device sales, but also the new revenue generated by mobile applications on all those devices.
It's a win-win
Of course, Apple itself should do well with the iPhone -- it's really only a matter of how well. And I really have to hand it to Steve Jobs and the Apple team -- no matter how well or how badly the iPhone is received in the market, Apple hit pay dirt with the amount of press and "free" advertising it has received.
So, in my mind, Apple has already won. Even if the iPhone gets raked over the coals as a high-priced, over-hyped glam device, it will still garner more attention and promotion than any massive marketing budget could have bought. And I believe the wave of euphoria is a tide that will eventually lift all boats, even the ones that many have pegged as losers.
For related Foolishness:
* This iPhone Would Be Worth $600
* Great Investments For Busy People
* Avoid the VoIP Value Trap
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Fool contributor Dave Mock is betting the iPhone will top Tickle Me Elmo as the "must have" item this year. He owns shares of Motorola. Dave is the author of The Qualcomm Equation. The Fool's disclosure policy thinks you're a winner no matter what.
http://www.fool.com/investing/general/2007/05/31/apples-iphone-who-really-wins.aspx
